Coffee Pulls Back from Six Month High on Wetter Outlook in Vietnam and Brazil

Arabica Coffee prices have been in a steady climb, pulling back slightly from an over six-month high of $2.4295 on August 25th. Forecasts for rain in Brazilian coffee growing areas in the next 10 days reduced concerns that La Nina will not allow sufficient moisture to sustain the development of coffee buds and cherries after some early flowering. Weakness in the Brazilian real Tuesday also weighed on Arabica.

ICE December Arabica coffee futures on Tuesday closed down -1.40 (-0.59%) around $2.39 per pound, and November ICE Robusta coffee closed down -18 (-0.79%) to around $2,274 a tonne after setting a 7-1/2 month high of $2,355 last week. Rains in top Robusta producer Vietnam over the weekend should improve slightly the outlook for the upcoming 2022/23 crop although may not be able to fully restore the damage caused by recent dry weather.

Arabica Coffee

The global coffee market is facing one of the biggest deficits in recent memory after drought and frost slashed Brazilian output.

Colombia is struggling to recover from crop-damaging rains, while Honduras, Guatemala and Nicaragua are running out of supplies from the 2021-22 harvest. Costa Rica’s next-season crop is showing signs of stress.

Maxar Technologies in their forecast said Brazil would remain mostly dry during the next five days but the 6–10-day outlook suggested light to moderate rains may return to southern coffee areas going forward. Last week the weather service said that La Nina weather conditions are likely to last through the end of the year. This would mean less-than-normal rain for Brazil through year-end, a situation that could exacerbate drought conditions and further stress Brazil’s coffee crops. Somar Meteorologia reported that Minas Gerais received no rain in the past week or 0% of the historical average. Minas Gerais accounts for about 30% of Brazil’s arabica crop.

Smaller coffee supplies from Colombia are supportive of arabica prices. The National Federation of Coffee Growers reported Aug 3 that Colombia’s July coffee production fell -22% y/y to 944,000 bags. Colombia is the world’s second-largest producer of arabica beans.

Stocks are also tight. The latest data indicated that ICE-certified arabica stocks on August 29th stood at 663,874 bags, an eighth successive daily increase after setting a 23-year low of 571,580 bags on August 15th.

Robusta Coffee

Robusta coffee has support from smaller global supplies. Vietnam is the world’s largest Robusta supplier and second-largest coffee producer. The robusta variety accounts for about 90% of Vietnam’s coffee output. Drought has cut robusta yields in Uganda.

The USDA June 7 revised its 2021-22 coffee production estimate for Vietnam upward to 31.58 million bags from 31.1 million bags but said 2022/23 production would fall by -2.2% y/y to 30.9 million bags.

Stockpiles will halve by the end of September from a year earlier, according to the median estimate in a Bloomberg survey of traders. With output from Vietnam is also expected to drop in 2022-23. The harvest runs from October through early January. The Central Highlands, the main coffee-planting region, is likely to receive higher rainfall in three months from October due to the La Nina weather pattern, the National Weather Center said this week. Output may fall 6% to 1.72 million tons in 2022-23, the survey showed.

A drop in the planting area for “profitable” fruit trees and a rise in fertilizer prices will probably affect production in 2022-23, said Do Ha Nam, Intimex Group’s chairman, and the Vietnam Coffee and Cocoa Association’s deputy head Bloomberg reported.

Vietnam’s General Department of Customs reported Monday that Vietnam’s coffee exports in Aug fell -12% m/m and -6.2% y/y to 110,000 tons. Vietnam’s exports in the eight months through Aug rose +14.7% y/y to 1.242 million metric tons.

The slump in Vietnamese inventories pushed domestic robusta prices in Dak Lak province, which accounts for about one-third of the country’s harvest, to a record high of 49,100 dong ($2.10) a kilogram last week.

Robusta is used by instant coffee makers including Nestle SA or as a blend in espressos. The variety is normally cheaper than arabica but is seeing strong demand as people look for alternatives to mitigate the impact of rising inflation.

Coffee Exports

The International Coffee Organization (ICO) reported Aug 2 that global coffee exports in June rose +1.3% y/y to 1.11 million bags and that cumulative coffee exports in Oct-June rose +0.5% y/y to 98.77 million bags.

Vietnam shipments rose 17% to 1.13 million tons in January-July from a year earlier, according to customs data. The increase in exports has been aided by an improving supply of containers and ships but may be difficult to sustain given the shrinking stockpiles.

Honduras, the world’s fourth-largest producer of arabica beans, reported on Aug 1 that July coffee exports fell -by 38% y/y to 409,668 bags due to a poor crop.

Cecafe reported Aug 10 that Brazil’s July coffee exports fell -16% y/y to 2.17 million bags on logistics and harvest delays at the beginning of the harvest season.

The USDA, in its bi-annual report released June 23, projected that 2022/23 global coffee production would rise +4.7% y/y to 174.95 mln bags, primarily due to Brazil’s arabica crop entering the on-year of the biennial production cycle. The USDA projects that 2022/23 global coffee ending stocks will climb +6.3% y/y to 34.704 mln bags.

Source: Reuters, Bloomberg

From The TradersCommunity News Desk